In August 2009, the American Medical Association reported that a study conducted at the George Washington University Medical Center reveals that nearly 10 percent of all healthcare costs estimated to be $2.3 trillion in 2007 — are fraudulent. The problem was called systemic and found to affect both private and public insurers who service individuals, employers group policies and public aid programs.

The most common fraud practices that drive up healthcare costs are false billing, referral kickbacks, wrongfully coded services, and bundling of services not delivered. The report attributes 80 percent of the healthcare billing fraud to health care entities, 10 percent to consumers, and the remainder to a mix of insurers and their employees.

The incidence of healthcare fraud in the private sector is less widely known and recognized by the public than that which occurs in the Medicare and Medicaid programs because the government is obligated to publish this information.

One flagrant example of healthcare fraud detailed in the report were allegations that one large insurance company manipulated its billing practices for out-of-network physician reimbursement to drive up healthcare costs by up to 28 percent. The report also uncovered large financial settlements made by several pharmaceutical companies and hospital systems for fraudulent billing of the Medicare and Medicaid programs.

The federal government is taking steps to stem systemic fraud in healthcare. The Departments of Justice and Health and Human Services have formed a joint fraud prevention and enforcement committee to pursue and root out healthcare fraud.

President Obama also recently signed new law amendments that broaden the government’s ability to leverage the False Claims Act to prosecute healthcare fraud. In addition, the Obama administration’s proposed budget for 2010 includes the allocation of $311 million — a 50 percent increase over the previous year to beef up Medicare and Medicaid healthcare fraud prevention efforts. It is estimated that reducing healthcare fraud in these public programs will save the government $2.7 billion in healthcare spending over five years.

Obama’s proposed fiscal 2010 budget also calls for infusing an additional $311 million — a 50% increase over 2009 funding — to strengthen Medicare and Medicaid fraud-fighting programs. The government reports that working with law enforcement officials to prosecute healthcare fraud recovered $1.1 billion in 2008.

Some of the initiatives the Justice Department is taking to reduce healthcare fraud include:

Specialized training in technology for investigators.

Careful data analysis of Centers for Medicare and Medicaid Services.

Delivery of training and resources to health care entities to enable better detection and prevention of fraud and billing errors.

Stronger supervision of Medicare Advantage and prescription medication plans.